Global Dairy Quarterly Q2 | A sensitive margin balance emerges, with all eyes on input cost pressures

Global milk production growth has begun to slow into Q2 following four consecutive quarters of expansion above 2% across the Big-7 regions. Output growth peaked at 5.2% in Q4 2025, with supplies expected to be 1.5% higher year-on-year in Q2, before flattening in Q3 and declining by 1.6% in Q4. On a full-year basis, milk production is estimated to rise 1% in 2026 and decline slightly in 2027, supporting a rebalancing of global milk supplies after several quarters of strong growth.

The earlier surge in supply has led to generally weaker prices, although trends vary by product. Global Dairy Trade price index increases have been supported mainly by skim milk powder, followed by whole milk powder, while cheese and butter remain below 2025 levels due to adequate supply. Farmer margins are a key focus, with contraction emerging in some regions as milk prices decline, particularly in the EU.

Across most regions, rising input costs are the most pressing concern, with energy, fertilizer, and interest rates driving potential margin pressure into the second half of the year and into 2027. Ongoing Middle East tensions and the Strait of Hormuz closure create uncertainty for oil prices, fertilizer availability, and feed costs, contributing to profitability challenges and the potential for production contraction in later quarters.

Consumer dynamics are also shifting, with food price inflation likely to rise and affect purchasing habits, while the “protein halo” continues to support dairy demand. Overall, higher input costs, margin contraction, and a tenuous milk price situation are expected to be key factors to watch, with demand shifts, geopolitical tensions, and weather risks shaping the outlook as the market seeks balance.